Thursday, September 18, 2008

The Benefits of Environmental Regulation: The Case Study of California's AB32

Economists like data and numbers. California's Air Resources Board is now offering some firm predictions concerning the benefits to our state's economy from enacting AB32. I hope they are right but are they right? More AB 32 Economics .

I would like to see the Air Resources Board convene a panel of California academic economists to sit down and in public discuss and debate what we know and what we don't know about the economic consequences of this legislation. The ARB appears to be surprisingly certain about their consequences of their regulatory actions. I respect people who can see the future.

If we are honest about what we don't know (such as how residential energy consumers will respond to higher prices), this would help to shape academic research such that California's environmental economists would be working on research that truly informs policy making. I do not need to be named to this panel of "wise people" but I would be happy to suggest 10 to 15 people who would do a great job. These people are not politicians or professional consultants, they are academics.

SACRAMENTO-The Air Resources Board today released two reports that highlight how implementing AB 32, California's pioneering climate change law, will provide net benefits to both California's economy and public health.

"The facts are in. These reports support the conclusion that guiding California toward a clean energy future with reduced dependence on fossil fuels will grow our economy, improve public health, protect the environment and create a more secure future built on clean and sustainable technologies," said Mary Nichols, ARB Chairman.

The reports analyze the economic and public health impacts of the recommended measures in the draft Scoping Plan, the State's policy framework that outlines how California will reduce greenhouse gases 30 percent by 2020, as required under AB 32.

The economic analysis indicates that ARB's strategy will create jobs and save individual households money. And, California will achieve those benefits while enjoying a net benefit in economic growth between now and 2020, compared to the "do-nothing" scenario where California continues to rely heavily on fossil fuels as it does today.

The public health analysis demonstrates that implementing the recommendations to reduce greenhouse gas emissions will build on existing air pollution programs that reduce smog-causing chemicals and toxic soot, providing significant additional public health and environmental benefits.

The economic analysis compares the recommendations in the draft Scoping Plan to doing nothing and shows that implementing the recommendations will result in:

Increased economic production of $27 billion Increased overall gross state product of $4 billion Increased overall personal income by $14 billion Increased per capita income of $200 Increased jobs by more than 100,000 The public health analysis shows that programs under AB 32 will improve on existing air pollution cleanup programs. As a result, in 2020:

An estimated 300 premature deaths statewide will be avoided Almost 9,000 incidences of asthma and lower respiratory symptoms will be avoided 53,000 work loss days will be avoided The recommended approach that was analyzed includes a mix of strategies that combines market-based regulatory approaches, other regulations, voluntary measures, fees, and other policies and programs to reduce greenhouse gas emissions. The economic analysis used analytical models that measure economy-wide impacts of those policies and measures.

The analysis indicates that the bulk of the economic benefits are the result of investments in energy efficiency that more than pay for themselves over time. Additionally, the results in the economic analysis may underestimate many economic benefits since the models do not include lower costs from innovation and improved technologies expected under a market-based program.

ARB is seeking public comment on both reports. Those comments will be considered in the development of the proposed Scoping Plan prior to it being presented for adoption to the Air Resources Board at its November hearing.

ARB is the lead agency for implementing AB 32, the Global Warming Solutions Act of 2006, and is part of an administration-wide effort to address climate change and mitigate the most severe projected impacts of global warming by reducing greenhouse gas emissions statewide.

Both reports, with appendices, can be found at http://www.arb.ca.gov/cc/cc.htm.

The Air Resources Board is a department of the California Environmental Protection Agency. ARB's mission is to promote and protect public health, welfare, and ecological resources through effective reduction of air pollutants while recognizing and considering effects on the economy. The ARB oversees all air pollution control efforts in California to attain and maintain health based air quality standards.